China stocks hit hard, rest of world shrugs

November 27, 2015 10:52 AM

Chinese shares slumped 5% on Friday, hit by regulatory and industrial sector worries, but the declines did not carry through to other major equity markets.

The Shanghai Composite index and the CSI300 both saw their biggest one-day drops in more than three months on signs that the country's securities regulator was clamping down anew on leveraged buying. China also reported a 4.6% drop in profit among large industrial firms.

Wall Street was slightly weaker in what will be an abbreviated post-Thanksgiving session, with markets slated to close at 1 p.m. ET. Walt Disney Co. led media stocks lower after the company said late Wednesday its ESPN subscriber base fell 3%.

The Dow Jones industrial average fell 27.86 points, or 0.16 percent, to 17,785.53, the S&P 500 lost 0.32 points, or 0.02%, to 2,088.55 and the Nasdaq Composite added 4.85 points, or 0.09%, to 5,120.99.

Europe was slightly weaker. Britain's FTSE 100 was down 0.3%, and France's CAC40 and Germany's DAX were both down 0.2%. The pan-regional FTSEurofirst 300 dipped 0.1%.

The dollar hit a new eight-month high against a basket of currencies on Friday as speculation that both the Swiss National Bank and the European Central Bank will further cut deposit rates next week.

The Swiss franc fell to its lowest against the dollar since August 2010 and dropped more than half a percent against the euro on speculation the Swiss National Bank will cut its rates even deeper into negative territory if the ECB moves.

China's offshore yuan, or renminbi, fell to a two-month low of 6.4510. The onshore yuan was lower as well on concerns about growth and a lack of clarity to its expected weighting in the IMF's benchmark currency basket.

"There is clearly a risk that China will try and devalue the currency further," said Ankit Gheedia, equity and derivative strategist at BNP Paribas.

The slump in Shanghai stocks brought a 25% rebound rally since late August to a halt and contributed the lion's share of a 1.1 percent weekly drop in MSCI's broadest index of Asia-Pacific shares outside of Japan.

Spot yuan was changing hands at 6.3952, 56 pips weaker than the previous close and about 0.04% away from People's Bank of China's midpoint rate of 6.3915.

"It’s uncertain if the Chinese government is keen to show the market influence in their rate setting or whether now that they know they have gained special drawing rights inclusion they are keen to weaken their overvalued currency knowing it will not jeopardize their case," Angus Nicholson, market analyst at IG in Melbourne, wrote in a note.

Gold was near a six-year low and oil edged lower, though both U.S. crude futures, which were at $42.30 a barrel and Brent at $45.43 a barrel, were up roughly 4% and 1% respectively for the week. 

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